An Idaho Power Company pilot program that allows
the utility to recover its fixed costs of providing power no matter how much
revenue is lost as a result of energy conservation is being made
permanent.

The Idaho Public Utilities Commission is allowing
the Fixed Cost Adjustment mechanism (FCA), formerly a pilot program, to
continue as a yearly adjustment to the rates of Idaho Power’s residential and
small-business customers. The FCA has lowered rates once and increased them
three times since 2007, though adjustments have been fairly minor. However, the commission is asking Idaho Power to
file a proposal within six months to address how reductions in consumption that
aren’t directly related to energy conservation should be treated.

Regulated utilities have a built-in disincentive to
invest in energy efficiency and conservation programs because they lose revenue
when electric consumption declines. To remove that disincentive, the Fixed Cost
Adjustment, which can be no higher than 3 percent, is designed to ensure the
company recovers its fixed costs of serving customers regardless of the amount
of energy conservation. Often referred to as “decoupling,” the FCA decouples
the link between energy efficiency and energy sales.

If the actual fixed costs recovered from customers
by Idaho Power are less than the fixed costs authorized in the most recent rate
case, residential and small-commercial customers get a surcharge. If the
company collects more in fixed costs than authorized by the commission,
customers get a credit.

The following is the average monthly rate impact of
the FCA for residential and small-business customers in the years from 2007
through 2011:

2007 – 48-cent reduction

2008 – 56-cent increase

2009 -- $1.28 increase

2010 -- $1.89 increase

2011 – 24-cent increase (proposed)

For the 2011 FCA, Idaho Power is asking for a 0.28
percent increase effective June 1. The utility claims it under-collected the
fixed costs it was allowed in the last rate case by $8.83 million from
residential customers and by $1.48 million from small-business customers.

All parties participating in the case endorsed
making the program permanent, but commission staff proposed that the FCA
balancing account be equally shared between customers and company. Commission
staff said that Idaho Power reports indicate that energy savings from company
programs accounted for between 24 and 43 percent of reduced consumption and
that other factors, such as the economy, contributed toward reduced power use.

The Idaho Conservation League said that while
staff’s observation may be true, there are other benefits to the FCA mechanism,
such as reduced risk to the company and its customers by ensuring Idaho Power’s
revenues and its returns are stable, which, in turn, incents cost controls. ICL said the revenue stability ensured by the
FCA decreases the company’s incentive to promote sales.The Northwest Energy Coalition also argued
against staff’s cost-sharing proposal, asserting that the change in the FCA
mechanism shifts the risks of sales volatility back to both the utility and its
customers.

Idaho Power also opposed the commission staff
proposal to share the FCA deferral balance. Staff’s recommendation compromises
the regulatory framework that “paved the way for Idaho Power’s aggressive and
successful pursuit” of cost-effective energy efficiency programs.

Since implementation of the FCA, energy savings
have increased from 62,544 megawatt-hours in 2007 to 163,315 MWhs in 2011. The
amount of energy saved during 2011 was enough to power more than 12,900 average
homes. Programs designed to reduce demand on the company’s system have
increased from 50 MW of reduction in 2007 to 403 MW in 2011. Energy efficiency
is the least expensive energy source for utilities. Program that encourage
reductions in energy demand and more efficient use of energy can delay or defer
the utility’s need to build more power plants or buy energy from more expensive
resources.

In its ruling, the commissioners said there is no
dispute that the FCA does not isolate or identify changes in cost recovery
associated solely with the company’s energy efficiency programs. “Staff’s
sharing proposal may have merit, but there is not a sufficient record to
support a finding that a sharing of 50/50 between the company and customers is
the correct ratio,” the commissioners said. Thus, within six months, Idaho Power
is directed to file a proposal to adjust the FCA to address the capture of
changes in load not directly related to energy efficiency programs.

A
full text of the commission’s order, along with other documents related to this
case, is available on the commission’s Web site at www.puc.idaho.gov. Click on “File Room”
and then on “Electric Cases” and scroll down to Case No. IPC-E-11-19.

Interested parties may petition the commission for reconsideration by
no later than April 20. Petitions for reconsideration must set forth
specifically why the petitioner contends that the order is unreasonable,
unlawful or erroneous. Petitions should include a statement of the nature and
quantity of evidence the petitioner will offer if reconsideration is
granted.Petitions can be delivered to
the commission at 472 W. Washington St. in Boise, mailed to P.O. Box 83720,
Boise, ID, 83720-0074, or faxed to 208-334-3762.